By: Our Correspondent

China is rapidly becoming a global colossus in renewable energy as it
seeks to reduce reliance on polluting fossil fuels and establish itself
as the top clean-power manufacturer and exporter.

The US
government has belatedly recognized the challenge and in December
convened the first meeting of a high-powered private-sector advisory
committee charged with developing a clean-energy export-expansion plan.
At the same time, the US Export-Import Bank announced increased
financing for “green” exports, about US$500 million for the next fiscal
year.

The US is destined to lose this battle for dominance if
Congress refuses to pass an energy policy. As part of a compromise on
the US tax bill, lawmakers agreed on 17 December to extend a tax-credit
scheme for another year, offering developers of wind, solar and other
renewables grants worth up to 30 percent of development costs.

But
America needs a more coordinated approach if it’s to compete with China
in clean-energy manufacturing and exports.

A study published by
the Harvard Kennedy School’s Belfer Center found that, unlike
industrialized countries, China and most other major emerging economies
coordinate and support energy R&D through government-owned
enterprises. The study covered Brazil, China, India, Mexico, Russia and
South Africa. By some estimates, investments in renewable-energy assets
may total US$2.3 trillion by 2020, yielding increased jobs and exports
as well as reduced greenhouse gas emissions, for countries that harness
green technology.

On 7 December, frustrated US Commerce
Secretary Gary Locke told the first meeting of the task force that China
pumps almost US$12 billion monthly into its renewable-energy sector:
“They’re doing this because they really want to be the world’s supplier
of clean energy and they recognize this will support millions of jobs.”

China’s
rise in key sectors of the green-energy business has been breathtaking.
In 1999, China made around 1 percent of the photovoltaic cells put into
solar panels to generate electricity. A decade later it’s the world’s
leading producer, with a 40 percent share of the market.

Companies
in China are expected to make more than half of all solar panels
manufactured this year and nearly 80 percent of solar hot-water units.
The nation’s also on course to produce nearly half the world’s
wind-power turbines, selling them at prices significantly lower than
those of manufacturers in the West and preparing for large-scale
exports.

If China becomes a green-power export juggernaut, it
will consolidate its lead in global high-technology sales, leaving the
US well behind. In 1998, the US share of worldwide high-tech exports was
nearly 25 percent while China’s was less than 10 percent. By 2008,
China’s share was 20 percent, with America’s below 15 percent.

Leadership
in clean-energy manufacturing is shifting from the West to Asia. Within
the Group of 20 leading economies, China, India, Japan and South Korea
are projected to account for approximately 40 percent of clean-energy
investments in 2020, leaving the US and Europe trailing.
A recent
survey by Bloomberg, in collaboration with the UN Environment Program,
found that China became the largest recipient of renewable-energy
financing in 2009, attracting more than 20 percent of the US$162 billion
invested worldwide in wind, solar, biomass, small hydro, biofuel and
marine energy.

While such investment in China grew by 53 percent,
it shrank in the US by 45 percent. The US exported at least $2 billion
of solar, wind, biomass, geothermal, hydropower and other
renewable-energy products in 2009, almost double the sum in 2007. But it
ran a trade deficit in the combined sectors, with imports of wind-power
equipment alone amounting to more than $3.6 billion.

Reasons
given for the West’s decline and China’s rise are a new source of
friction in Sino-US relations. Both Washington and Beijing consider the
clean-technology sector crucial to energy security and economic growth.
However, renewable-energy companies in the US struggle to find
investments. They’ve cut jobs and, in some cases, moved operations to
China.
US President Barack Obama maintains that the industry should
be a vibrant source of employment and exports for America, in September
calling for “a home-grown clean energy industry.”

In October, the
US Trade Representative’s office announced that it would investigate
Chinese government support for manufacturers of wind and solar energy
products, advanced batteries and energy-efficient vehicles – the result
of a petition from a powerful US union, the United Steelworkers, with
850,000 members in a range of energy-related jobs.

The petition
claims that China protects and unfairly supports its clean-energy
producers in breach of World Trade Organization rules. The main thrust
is that the Chinese government makes widespread use of cheap loans and
land grants to subsidize exports of clean energy equipment.

Chinese
President Hu Jintao is due to make a state visit to Washington in
mid-January. Clean energy is on the agenda. The Obama administration
recently took the first step in filing a trade case against China at the
WTO, alleging that Beijing has given several hundred million US dollars
in wind-power grants that exclude foreign-made parts and components.

In
a 22 December statement, the US trade representative suggested that
China is illegally subsidizing wind-equipment production, and the
"subsidies effectively operate as a barrier to US exports to China." The
US and China have 60 days to resolve the disagreement. If negotiations
fail, Washington could ask for a WTO dispute settlement panel to hear
its complaint.

The WTO prohibits virtually all subsidies to
exporters to prevent governments from trying to help their companies
gain unfair advantage in world markets. WTO rules permit member states
to subsidize goods and services in their home markets, as long as those
subsidies do not discriminate against imports.

In an angry
reaction to the US probe, Zhang Guobao, head of China’s National Energy
Administration, implied that the Obama administration deliberately
courts protectionist sentiment in the US where nearly one in ten adults
are unemployed.

The US, too, spends billions of dollars to
subsidize research and development of clean energy, arguing the intent
is to help build a “home-grown” industry, not flood the world with cheap
exports.

Clearly, part of China’s clean-energy success is due to
the same factors that made it the world’s manufacturing workshop: low
labor and construction costs, expanding universities that churn out
engineers and technicians, improving telecommunication and transport
systems.
China has also set clean-power targets. By 2020, it aims to
have 15 percent of electricity generated by renewable energy – excluding
large hydro-power dams – up from 4 percent today. In addition, it plans
to reduce carbon intensity of economic output by more than 40 percent
by 2020.

China has overtaken the US as the world’s biggest
emitter of carbon dioxide, the main global-warming gas from human
activity. So Chinese officials argue that they should be praised, not
punished, for helping to curb greenhouse emissions at home and combat
climate change abroad by selling low-cost clean-energy products.

The
US Congress in 2009 passed economic-stimulus legislation that included a
so-called buy-American clause. This obliges firms and local governments
receiving stimulus money to purchase only steel and other construction
materials, including solar panels and wind turbines, made in the US or
in other countries that signed the WTO side agreement mandating free
trade in government procurement.

Nearly all industrialized
economies have signed the side agreement to open their procurement
projects to international competition. But China has not yet done so
because municipal and provincial governments, particularly in less
developed inland provinces, say they’re not ready.
If cool heads
prevail, there’s time to defuse the US-China clean-energy row. Talks
have already settled some issues. Beijing could hasten the process by
signing the WTO procurement agreement and shifting subsidies away from
exports toward encouraging Chinese consumers to use clean power, a move
that could increase demand for foreign imports of clean-energy products
and components.

Michael Richardson, a former Asia editor of
the International Herald Tribune, is a visiting senior research fellow
at the Institute of South East Asian Studies in Singapore. This
reprinted with the permission of the Yale Center for the Study of
Globalization